In the same week in October 2017, the District Court of New South Wales and the Australian Federal Court both handed down decisions in relation to the Australian Consumer Law (ACL) legislation.  The decisions relate to the activities of both a transport operator and a freight forwarder and highlight aspects of the consumer law as they apply to entities in the transport sector.

 

Misleading and deceptive conduct and breach of warranty

On 16 October 2017, the District Court of New South Wales handed down a judgment that is of significance to all freight forwarders that issue house bills of lading, Australia Capital Financial Management Pty Limited v Freight Solutions (Vic) Pty Limited [2017] NSWDC279.  The freight forwarder in this case, Freight Solutions, was found liable for misleading and deceptive conduct within the meaning of the ACL and in breach of a warranty of authority resulting in judgment being entered against Freight Solutions in an amount of $845,456.93.

In this case the finance company, Australia Capital Finance Management Pty Limited (ACFM), entered into a loan agreement with an Australian exporter of sheep skins and cow hides.  The exporter could draw down on the loan upon presentation to ACFM of “original shipping documents… including but not limited to the invoice, customs declaration, packing slip, insurance and bill of lading”.  If the exporter defaulted on its loan repayments ACFM had the right to take possession of the goods.

The exporter supplied the finance company with the house bills of lading that had been issued by Freight Solutions.  These had been signed by Freight Solutions as agent for various carriers.  ACFM believed that it was acquiring security of the goods when it was provided with these house bills of lading and that no other person could take possession of the goods without presentation of the bills of lading. The house bills of lading provided had the features of an original bill of lading with the consignee marked “TO ORDER”, each bill stamped “ORIGINAL” and none of the bills were endorsed.

The exporter failed to meet one of the drawdowns and the financier expected to recoup its losses against the goods except that the goods had been released on presentation of the carrier’s original bills of lading.  The conduct of Freight Solutions in issuing bills of lading purporting to be original bills was found to be misleading and deceptive.  It did not matter that Freight Solutions had no intention of doing so.

Freight Solutions was also found to have purported to execute bills of lading as agent for the ocean carrier without authority to issue bills on their behalf or sign as their agent.  The Court found that the breach of warranty of authority was the cause of the financier releasing funds, and therefore the cause of its loss, meaning that ACFM also succeeded on this basis.  Freight forwarders who issue house bills of lading should be conscious of how they are representing their role in shipping documents particularly bills of lading which also serve as documents of title.

 

Unfair Contract Terms

In the Federal Court of Australia, ACCC v JJ Richards and Sons Pty Ltd [2017] FCW 1224, the new unfair contract terms provisions of the ACL were tested.

The November 2016 amendments to the ACL extended the unfair contract provisions that used to apply only to consumers, to small businesses entering into standard form contracts.  At least one of the parties to the contract must be a small business – that is one which employs fewer than 20 people including any casual staff who are employed on a regular or systemic basis.  The value of the contract at the time it is entered into must not exceed $300,000 over 1 year or $1million if the contract exceeds one year.

A term of a contract can be considered unfair if it:

  • would cause a significant imbalance to the rights of the parties and their obligations;
  • is not reasonably necessary to protect the legitimate interests of the party benefitting from the term;
  • would cause financial or other detriment if it were to be applied or relied upon.

In ACCC v JJ Richards the Federal Court found that several of the terms contained in the waste operator’s standard form contracts to be unfair.  JJ Richards had entered into standard form contracts with over 26,000 customers.  These included clauses that allowed JJ Richards to:

  • automatically renew contracts unless the contract was terminated 30 days before the end of the term;
  • unilaterally increase its prices;
  • use reasonable endeavours to perform the collection services but accept no liability if such performance was hindered;
  • ensure the customer exclusively used JJ Richards for their waste removal services during the term of the agreement;
  • suspend the services for non-payment within the credit terms yet continue to charge for services during the period of suspension; and
  • create an unlimited indemnity in its favour even where the loss was not due to the customer’s fault.

In this case it was the Australian Competition and Consumer Commission (ACCC) which sought declarations from the Federal Court to restrain JJ Richards from using these clauses in their standard form contracts.  Should a contract term be declared unfair, a court may order that the term be declared void with the balance of the contract to remain on foot.  Alternatively, a court may refuse to enforce a contract or direct a refund or the re-performance of services.

Importantly, certain contracts, including for carriage of goods by sea, are excluded.  However, a freight forwarder’s terms and conditions, extending the period of carriage beyond the sea leg and including transport by road or rail, may still be caught by the provisions of the unfair contract terms legislation.

 

Cautionary Tales for Freight Forwarders and Transport Operators

These cases illustrate the need for freight forwarders and transport operators to be careful when providing documents that relate to the carriage of goods, including house bills of lading and standard terms and conditions.

It is important to ensure that house bills of lading are not confused with sea bills of lading and should not include wording such as “ORIGINAL”. In addition, to consider the effect of the complete documented transaction before it is concluded. A freight forwarder should also not purport to act as agent for a sea carrier where there is no actual agency, as this will be held to be misleading and deceptive conduct under the ACL.

Transport operators should also check their standard terms and conditions in light of the decision in JJ Richards.  In particular, it is important to consider whether there is any significant imbalance between the parties to the contract and if so whether this is necessary to protect a legitimate business interest.

 

Prepared by Alexis Cahalan, Principal Lawyer and Alistair Sullivan, Solicitor, Thomas Miller Law

14 November 2017

Author: Alexis Cahalan, Principal Lawyer

+612 (0)2 8262 5851

alexis.cahalan@tmlawltd.com

Author: Alistair Sullivan

+612 8262 5859

alistair.sullivan@tmlawltd.com